ON–039: DeFi

This is issue #39 of the on-chain analytics newsletter that reaches more than 5000 crypto investors every week 📈

This week our contributor analysts cover DeFi: Balancer, Maker, Synthetix, and Yearn.

• The first ever initial token sale on a Balancer Liquidity Bootstrapping Pool (LBP) was held from Sept. 9-11, as the Perp.fi team launched the PERP token. The offering validated LBPs as an effective mechanism for running a decentralized token sale with fair competition, even token distribution, and healthy price discovery with minimized volatility.

• As intended, the LBP neutralized advantages that bots typically have over analog human investors in token sales, by shifting incentives from buying immediately to waiting for the market to determine a fair price. This is exemplified by a likely automated purchase made at the start of the sale that was subsequently sold back at a loss. A total of 1,355 investors participated, with the vast majority appearing to be long-tail investors accumulating relatively modest quantities of PERP. Only 8 participants accumulated more than 1% of the PERP tokens sold, with the largest stack amounting to 4.1%. The order sizes seen in the chart below indicate that some whales were involved, but most orders were within the reach of typical investors. Order sizes chart:

• The PERP LBP achieved starkly different price discovery compared to recent token offerings such as UMA and BZRX, which were sold via Initial Uniswap Offering (IUO). The PERP sale, which lasted 3 days, reached its lowest price of 1.058 USDC approximately 12 hours after the sale began; subsequently reaching a high of 2.304 USDC about 33 hours into the sale, resulting in a delta of 118% from trough to peak before settling on a final price of 2.076 USDC. In contrast, the UMA token sale reached a high 500% above its opening price in less than 10 minutes, while BZRX soared 1,200% within the first 60 seconds of its sale. Here is a chart of the PERP token price as the sale unfolded:

• Zooming out on the DeFi ecosystem, Balancer currently ranks #3 in the space with the lowest price-to-sales ratio (calculated via TokenTerminal’s methodology: fully diluted market cap divided by annualized revenue) at 17.8x (lower is better!); ahead of Kyber Network (#4) and the Ethereum network (#5). It currently sits behind only SushiSwap (#1) and Uniswap (#2). Looking a little closer, however, Balancer’s price to sales ratio is actually even lower. While it’s true that 100M is the maximum theoretical BAL supply, this amount will likely never be reached. As a point of reference, growth companies commonly trade at price-to-earnings ratios of 100+.

• Taking a look at platform growth, Balancer has experienced a strong and steady uptick in daily active liquidity providers (LPs), growing 1,196% since June 1st, as shown by the query created by Matteo Leibowitz, visualized below. Daily active LPs have crossed above 1,500 both in August and September, while Balancer liquidity has now exceeded $628M.

A glimpse into the SNX OTC market. Over-the-counter markets tend to be opaque and marked by information that can be difficult or costly to obtain. This makes OTC markets a really interesting topic in the context of DeFi and Ethereum, where market participants transact on a publicly verified ledger. Specifically, participants use technologies such as Airswap and Deversifi’s trustless smart contracts to execute OTC deals between parties who otherwise don’t know each other.

The OTC market for SNX is an important place for larger players to get bids filled without incurring much slippage. Approximately 79.72% of SNX are locked as collateral for minting synths like sUSD. This leaves a small percentage of the supply available for accumulation. Just 3.8% of all SNX are available on Binance, Uniswap, Kucoin, and Poloniex.

• Since March 2020, SNX OTC deal volume through Airswap totaled $21,064,281.12. During the last six months approximately 4,520,232 SNX have been swapped, or 3.78% of the circulating SNX supply and 2.24% of the total supply. A typical SNX OTC deal size is 122,168 SNX, giving an average deal value of $569,304.90.

• As far as tempo, July was the busiest month for SNX OTC brokers as 11 trades were conducted in that month. But the average deal size was also just the fourth-highest of the six months examined in July. Meanwhile, in July and August combined SNX buyers went through OTC brokers 17 times, while buyers went through OTC brokers 20 times from March through June.

Binance’s SNX listing in July is likely to weigh negatively on future OTC activity for SNX. Binance has a wide distribution to users across the ecosystem and amassed more than 5 million SNX in its wallets, making Binance the largest SNX holder among centralized and decentralized exchanges. Deals worth more than $1 million will likely continue to be done via high-touch OTC brokers, SNX OTC broker Nocturnalsheet tells Our Network.

A major kudos goes out to Kaleb Keny, a.k.a. KALEB on Discord, and Alex Svanevik of Nansen.ai for assisting with the data for this write-up.

• The top destination for YFI tokens right now is the money market protocol Aave. Interestingly, the APY for locking up YFI in Aave is near zero. So why is it being deposited to Aave? Most likely, the reason is that depositors regard YFI as a superior asset to use as collateral, with low downside risk on price (Source).

• The SushiSwap YFI/WETH pool is still among the top-holding YFI addresses. However, since the spectacular migration from Uniswap, YFI liquidity on SushiSwap has quickly fallen from 2,444 YFI to only 673 YFI as of today - a drop of more than 70%. (Source).

As you can see in the table up to the right, Coinbase is a notable entry into the list of exchanges holding YFI. But it's still nowhere near being the top exchange in terms of YFI liquidity.

In fact, YFI on exchanges has been trending down since September 7th, when it peaked at 30% of total supply. Currently, around 24% of all YFI is sitting on exchanges - both centralized and decentralized (Source).

• That date coincided with a local minimum in YFI price against ETH. This suggests investors have been accumulating YFI over the last 10 days, as tokens have been flowing out of exchanges, with price increasing to a new high. (Source).